BIR Ruling [DA-313-03]

September 25, 2003 BIR RULING [DA-313-03] Sec. 6 (E); 041-01 Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty. Rafael Ma. C. Vinzon Tax Division Gentlemen : This refers to your letter dated March 7, 2003 requesting, on behalf of your client, SOLID MANILA CORP. (SMC),for a ruling relative to the determination of fair market value for purposes of computing the capital gains and documentary stamp taxes. It is represented that on December 31, 2001, Solid Distributors, Inc. (SDI) sold a parcel of land classified as residential to SMC which is situated at Brgy. San Agustin, San Fernando, Pampanga, covered by Transfer Certificate of Title No. 195472-R for a consideration of P1,704,300.00. The amounts of P102,258.00 and P25,575.00 were paid as capital gains and documentary stamp taxes respectively. The documents pertaining to the sale was presented to the Revenue District Office No. 21, San Fernando, Pampanga for issuance of Certificate Authorizing Registration (CAR).The Revenue Officer to whom the case was assigned opined, after an ocular inspection of the property, that the consideration agreed by the parties was very low considering that it is located in a predominantly commercial area. Accordingly, a re-computation of the taxable value based on the market price of the adjacent properties be made. And that, any difference between the gross selling price and the adjusted value of the subject property shall be subject to donor's tax. Based on the foregoing representations, you now request for a ruling of this Office on the following issues: 1. Whether or not the Revenue Officers have the authority or discretion to determine the fair market value of the property for purposes of computing the capital gains tax; and 2. Whether or not the difference between the gross selling price and the alleged adjusted value of the property as determined by the Revenue Officer is subject to donor's tax. ESHAcI In reply, please be informed as follows: 1. Section 6(E) of the Tax Code of 1997 provides that the Commissioner is authorized to divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers both from the public and private sectors, determine the fair market value of real properties located in each zone or area. For purposes of computing any internal revenue tax, the value of the property shall be, whichever is higher of: 1. The fair market value as determined by the Commissioner; or 2. The fair market value as shown in the schedule of values of the Provincial and City Assessors. It is clear from the foregoing that only the Commissioner has the authority to determine the fair market value of real properties in specific zones or areas upon consultation with competent appraiser. Once the zonal values has been established in any particular area, the same shall be applied in computing all internal revenue taxes due on sales, exchanges, or other dispositions of real property. Inasmuch as the zonal valuation of the property sold has already been determined by the Commissioner at P1,425.00/square meter and the same being equal to the consideration appearing in the deed of sale and higher than the fair market value, therefore it behooves to the Revenue Officer concerned to use it in computing the internal revenue taxes. The Revenue Officer of Revenue District Office No. 21, San Fernando Pampanga, has no discretion to determine the classification or valuation of the properties located in the pertinent area. (BIR Ruling No. 041-2001 dated September 18, 2001) 2. The belief of the Revenue Officer that the classification of the property should be "commercial" and that a re-computation of the taxable value be made for purposes of computing the capital gains and documentary stamp taxes due on this particular sale is without any legal basis. As discussed above, only the Commissioner has the authority to determine the zonal valuation of any particular area. Stated otherwise, the Revenue Officer cannot use any other valuation of the property sold by SDI to SMC than what is determined by the Commissioner of Internal Revenue. Resultantly, the difference between the gross selling price and the alleged adjusted value as determined by the Revenue Officer would not cause the imposition of donor's tax under Section 100 of the Tax Code for reasons above stated. IcHDCS This will, therefore, serve as your authority to apprise the Revenue Officer to compute the internal revenue taxes due on the sale based on the zonal valuation determined by the Commissioner and to process the application for issuance of Certificate Authorizing Registration. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group